Senator Gregg’s Floor Remarks on “No State Bailouts” Amendment
Unofficial Transcript
May 18, 2010
This amendment is simple. It says that American taxpayers should not be put on the hook for states that have been profligate. Specifically, it says that federal funds cannot be used to purchase obligations of state or local communities that are in default or are about to default, unless those states have gone through some sort of crisis like in the aftermath of Hurricane Katrina. But if the default that the state or community is about to experience is a function of their failure to discipline their fiscal house, then we're not going to ask the taxpayers across this country to support that error in judgment and the misguided fiscal policy of that state or local government.
If we don't have this type of rule in place, we're going to have a situation where the American people will become the guarantor of inappropriate actions across this country by legislators and city governments. Then you will have a situation where you will basically create an atmosphere where there is an incentive for state governments and local communities to be fiscally irresponsible. Again, it’s this moral hazard issue that we debated at considerable length when we discussed “too big to fail” in the banking system. This bill has a lot of issues, as far as I’m concerned, but one of the things that it handles reasonably well is “too big to fail.”
We have designed language in this bill, between Senator Dodd and Senator Shelby, that essentially says: no longer will the American taxpayer be presumed, or in any way expected to have any obligation at all to support a financial institution that has gotten too large, has taken on too many risks and is, therefore, in fiscal distress. That institution will fail. The stockholders will be wiped out, unsecured bondholders will be wiped out and the American taxpayer will not come in and defend that situation. “Too big to fail” hopefully ends with this bill, but it should apply, also, to state and local governments.
We should not create the moral hazard of having taxpayers in New Hampshire, Nebraska or New Mexico responsible for profligate activity in other states. In fact, many of our states have balanced budget requirements. In fact, in Nebraska they don't even allow any debt, period. They have a constitutional amendment that says there can be no debt. These states are extremely disciplined in the way they handle their budgets. And the citizens of those states expect their leaders to be disciplined.
What do we say to the taxpayers and citizens in those states who have been disciplined, who have elected people who are willing to live within their means as they govern, whether it's at the community level or at the state level? How can we ask those citizens across the country to go in and bail out other states and communities that have been totally undisciplined in managing their fiscal house, have put themselves in huge distress and have defaulted on their debt or are about to default on their debt? This isn't acceptable.
If we're going to have a bill that addresses the issue of “too big to fail”, it should apply to this type of a situation. And so, I’ve offered this amendment, that, very simply, prohibits federal funds from being used to purchase or guarantee obligations of state and local communities that are in default or about to go into default. This is pretty standard, and pretty clear.
If you have a state that, for reasons of its own making, has created a fiscal mess of inordinate proportions and can't pay its debts, it can't come to Washington and say, “We want you to bail us out.” That’s not right. It’s not appropriate, and so this bill bans that sort of event from occurring.
Why do need to do this? It’s pretty obvious. There are a couple of states in this country that have been irresponsible in their spending, that have not disciplined themselves and that are expecting everyone else in this country to bail them out. I sure don't want to be a part of that, and I don't want the taxpayers in New Hampshire to be a part of that. It's not fair that they should be a part of that.
Those states are going to have to figure out how to straighten out their own fiscal house and they should have to do that within the terms of their own spending and revenue streams. They shouldn't expect the federal government to come in and take them out of their distress, that was self-imposed and self-created.
There is an exception in this language so that if the state is put in severe distress, because of an emergency situation such as Hurricane Katrina, this would not apply. Obviously, it shouldn't apply then. But, if it's a self-imposed event, simply resulting from the human nature of legislators and city councils to sometimes spend a heck of a lot more money than they have, or that they can take in under their structure, then they should have to figure out how to pay for it and deal with it themselves rather than passing that problem onto the American people by financing it here in Washington.
So it's consistent with the theme of this bill that nothing should be “too big to fail” in this country, including state governments, local governments, and financial institutions, and I would hope that my colleagues would support this amendment. At this point, I would reserve the balance of my time and yield the floor.
###
